The Housing Market in Pictures: Are We In A Housing Bubble?

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The Housing Market in Pictures: Are We In A Housing Bubble?

March 30, 2022
Blog, Buyers, Sellers
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Laura Garcia, Realtor

You could drive by the corner gas station this past month and see the steady uptick of prices. On your way to and from work, you could easily check in on where gas prices were: 3.59…3.89…4.09…up and up. Gas prices provided an easy visualization of inflation and rising prices that the nation has been battling during the covid pandemic.

Housing prices, like gas prices, have been making a sizable uptick the past few years as well. Unlike the gas station though, we don’t have a corner store we can drive by to see how quickly they are going up. Real estate headlines in the news can often dilute our perspective because they are often based off data from six weeks to as long as 6 months before. The housing market also varies widely based on location, style of home, and condition. Unless you are out buying and selling homes regularly, like those working in the industry, it can be hard to detect shifts and subtle nuances appearing in the market.

Now that we are more than two years into the crazy market that the pandemic created, we are starting to have enough data to see developing trends. It is a good time to check in and see how inflation and demand are affecting the real estate industry. The number one trend no one can deny: Housing prices are going up quickly. “When it will end?”, “Why it is happening?”, “Are we in a bubble?” and other questions plague many investors and homeowners minds.

Let’s take a look at three visuals below to see trends as we enter the Spring selling season. Just like you check in on the stock market regularly for your retirement savings, it is important to check on your home’s valuation and how the market may be affecting one of your largest assets. You never know when the next shift may happen.

THE HOME-OWNER ADVANTAGE

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Entering the covid pandemic as a homeowner is a major advantage. Homeowners have seen large equity gains in the past few years, and many have been able to cash out. Whether to downsize and bolster retirement savings or to take advantage of interest rates to upgrade and make a strong down payment on your next home, homeowners have been on the move. These equity gains, however, have hurt one very important home buyer segment: First-time home buyers.

With rising home prices and rent, first time home buyers are consistently getting priced out of the market. According to Zillow, first-time home buyers made up 43% of the market in 2020, but only 37% in 2021. Now the National Association of Realtors is showing that as of January 2022, they only make up 27% of the market. Renters, without the advantages of home equity, cannot compete.

Personally, I have seen the same thing with my clients. The offers that come in over asking and with strong appraisal gaps tend to be from home owners who got the same high prices on their homes. They are translating those gains into this new home purchase. My buyers who are just starting out and attempting to juggle a down payment and rent are consistently forced to sit on the sidelines. Or need an older family member (who is almost always a current homeowner) to provide the down payment.

Being able to cash out on home equity is becoming a winning strategy for baby boomers. Factor in the proliferation of investors in the market and first-time home buyers are definitely out of the running. Home equity growth is definitely a trend to watch as we move forward.

THE TALE OF TWO MARKETS: PRE-COVID & COVID.

Onto a personal chart, I helped sell a home this month that was three years in the making. This newer construction home was located in a neighborhood with standardized floor plans and amenities, making it easy to value due to limited variations. This home’s journey in the covid market gives a great visualization on how quickly prices have started to rise. The journey of getting this home on the market made the articles and charts on housing affordability concrete, and I hope they do for you as well.

2019: The family purchased the home in St. Johns County for $535,000 directly from the builder.

2020: The family contacts me to come give a valuation on it worth. Recent sales in the area showed it had appreciated only to $550,000 in the course of a year. The sellers wait.

2021: Recent sales now show the home worth $650,000. The sellers wait to list still.

2022: Recent sales in the neighborhood show a value of $750,0000 for the home. The sellers are ready to list it.

March 11, 2022: We close at $800,000 to an all cash buyer. No repairs were made and closing took place in less than 30 days. The cash buyer is also selling a home at the top of their market and using the cash from their sale to purchase this one.

This home in St. Johns County saw a 49.5% price appreciation in only 3 years. According to MillionAcres, since 1940, the median home value in the United States has increased at an annualized rate of 5.5%. Stocks generate roughly 7% per year over the long term after accounting for inflation. This one home shows that these historical averages are changing. This rapid price appreciation is a trend that many fear is not sustainable, but are unsure where it will end and how much (if at all) prices will dip back down.

ON THE RISE

For the first time in three years, the Fed approved an interest rate increase in March to help curb inflation, and indicated they would be raising rates 6 more times in 2022. The Fed does not determine mortgage interest rates but does indirectly affect them. After this increase, mortgage interest rates started ticking up and hover around 4.5%. To give perspective, I had a buyer close on a home at 2.75% earlier this year.

Historically, 4.5% is still considered very low for mortgage interest rates. When compared to the cost of housing historically though, it can change your perspective. The lower rates are being used to purchase homes at a higher price. In this crazy covid market, these low rates were being used to help make over-asking offers more affordable. I regularly had buyers determine that x% interest rate made an offer $25,000 – $50,000 over asking feasible for them. When money is cheap, it changes the perspective on housing prices. As we enter the spring selling season, we are unsure how this uptick in mortgage rates may affect sales price and bidding wars.

HOW IS THIS AFFECTING ME?

Prices are rising more gradually, but homes are becoming less affordable in Northeast Florida. The median sales price for a single-family home in Northeast Florida rose to $351,495 in February, 24.6% higher than the same time last year but only 2.7% higher than January. Sellers are in a better position than ever. A third of homes that sold in February went for more than the list price, the Realtors association said. That was 3.9% more than the month before and 73.8% higher than February 2021. Virtually every seller got at least what they listed for.

Many homes are disappearing from the market before buyers can even look at them. The median time that a home lasted on the market in February was 17 days, according to Realtors association data. That was about the same as last year, but homes closed 15% quicker than the month before.

To compound the situation, fewer homes are even available. A total of 2,227 homes had active listings last month, 15.6% less than the month before and 33.9% less than a year ago. New listings totaled 2,192 in February — 1.3% more than January but 6.7% less than February 2021. The real estate market is going in strong to the Spring selling season.

Want to learn more about the information above? Check out these sources below: